FMA welcomes High Court ruling on Perpetual

Media Release
10 September 2012

The Financial Markets Authority has today welcomed the High Court's judgment that it can retain documents relating to its inquiries into Perpetual Trust Limited. Perpetual had previously brought a challenge against FMA's information-gathering notices, alleging they were unlawful.

FMA values the clarity of the High Court's ruling that there was no unfairness in the way FMA in fact obtained information and documents under its section 25 notices issued to Perpetual in April. FMA recognises that the High Court did however find that its notices were, in that instance, unlawful because they required documents to be provided "immediately".

FMA Chief Executive, Sean Hughes, said this is the first time a Court has ruled on a question about FMA's ability to give a notice of this kind, since FMA was established in May 2011.

"FMA accepts the judgment and welcomes the clarification from the Court on how it expects FMA to use this power going forward," said Mr Hughes.

"Significantly, the judgment confirms that FMA acted reasonably and fairly. The circumstances of this case required FMA to act urgently in the public interest, and that action has resulted in the repayment of a substantial loan which is in the best interests of investors."

The Court confirmed that on 26 April, FMA had grounds to suspect a potential breach of Perpetual's duties as trustee and a possible breach of s58 of the Securities Act 1978. The Court says that it was necessary and desirable for FMA to embark upon collection of relevant evidence.

FMA's inquiries with respect to Perpetual are on-going.

Background:

In April 2012 FMA began making inquiries into issues regarding Perpetual Trust Limited (Perpetual), (a subsidiary of Pyne Gould Corporation (PGC)) and related entities. Those inquiries focused particularly on loans made by the Perpetual Cash Management Fund (Fund) to Torchlight Fund No. 1 LP (Torchlight) and the implications for the investors in the Fund and the Perpetual Mortgage Fund.

In FMA's view the loans were not in the best interests of investors in the Funds and the circumstances in which they were made by Perpetual reflects a lack of understanding of its role as trustee of funds of this nature.

On 26 April 2012 FMA issued notices under s25 of the Financial Markets Authority Act requiring that Perpetual and various individuals provide documentation to FMA. The information was provided to FMA over a 16 day period. Following on-going engagement between Perpetual and FMA, the loans were repaid. FMA's inquiries with respect to Perpetual are on-going.

Torchlight is a limited partnership for sophisticated investors run by Torchlight GP No 1 Limited (Torchlight GP), a subsidiary of PGC. FMA understands George Kerr is Chairman and has an ownership interest in Torchlight. Mr Kerr is also a director and owns approximately 76.5%, of PGC.

Ends

Contact:
Tony Reid on 021 739 052 or tony.reid@fma.govt.nz